Latvia has the fastest growing economy in the Baltics

Latvia has been exhibiting the fastest growing economy among the Baltic countries over the last five years, according to the latest statistics of the third quarter of 2017 by the Central Statistical Bureau of Latvia. The most recent data from the third quarter show that Latvia’s GDP has grown by 5.8%, which is the highest increase over the last five years in the Baltics.

An important factor in the economy growth stimulus was the increase in investments. In the third quarter of this year, gross fixed capital formation was 1/5 higher than a year ago. Investments in housing, buildings and construction increased by 25%, while in machinery and equipment – by 13%. Additionally, investment in intellectual property products (research, computer software, databases, copyright, etc.) has increased by 17%. Investment dynamics continue to be positively affected by both growing external and internal demand, the expansion of the availability of EU structural funds investment as well as the increase in credit limits. With continued favorable environment for investments and high capacity, a relatively rapid investment dynamics can be expected in the future.

At the same time, the economic growth continues to be driven by an increase in private consumption – household consumption expenditure increased by 5.8% in the third quarter. It should be noted that the increase in consumption is positively affected by the noticeable improvement in the labor market – the number of employed increased by 0.9% in the third quarter, the unemployment rate decreased to 8.5%, while the average gross wage increased by 7.5% during the year.

Comparatively to previous years, export volumes have reached the highest level. Exports of goods and services increased by 2.4% in the third quarter (exports of goods by 2% and exports of services by 4%), while earnings from export increased by 6.7% (comparatively, in the second quarter by 6.3%). It should be noted that the faster growth of export earnings was largely driven by the increase in prices of exported products. In the third quarter of this year, producer prices for exported products increased by 3.3% year-on-year.

A significant factor in the GDP growth in the third quarter was the construction industry that saw an increase in investments as high as 25%. At the same time, the base effect also should be considered – the industry's rapid growth is compared against 2016, when the construction sector saw sharp declines in volumes due to delays in European Union investment fund availability. In comparison with the third quarter of 2015, the construction volume was still lower by 2.5%.

Strong growth can also be observed in the manufacturing industries as well as in the transport and storage services sectors. Overall, manufacturing grew by 8.4% in the third quarter and by almost 10% in transportation services. Stable growth was observed in almost all niches of the manufacturing industry, and more than half of the sector growth can be attributed to an increase of activities in metalworking – by 19.4%, in wood processing – by 3.5%, in food industry – by 4.2%, and transportation vehicle manufacturing – by 30.3%.

Similarly, there was a noticeable increase in the knowledge intensive services sectors – the information and communication services industry grew by 5%, incling computer programming and consulting – by 10%, information services – by 15%, but telecommunication services decreased by 3%.

Considering the favorable conditions, such as the economic growth in the EU countries, which is the largest market for Latvian goods as well as available EU investment funds, the final numbers for 2017 might show a GDP increase of 4.4%. Growth is expected to continue in 2018 when the GDP growth could reach 4.2%.

Source: Ministry of Economics of Latvia